- ‘Fin-techionary’ of the Week: Point of Sale(1.11)
- News (2.05)
- Interview with Giorgio Giuliani about their experience and current work at Sum Up (4.47)
- Quick Fire Questions with Giorgio Giuliani(32.20)
- Signals: Rent is Rising – The Rent-A-Charter Model Just Got More Expensive (39.04)
Hey FinTech friends. Hey FinTech friends. My name is Helen Femi Williams, and I'm your host of this new podcast. Hey FinTech friends!
This podcast is brought to you by This Week in FinTech, which is on the front page of global FinTech news, fostering the largest FinTech community through newsletters, thought leadership, and events. Oh, and now podcasting.
So let's talk about the structure of this podcast.
- First, we're going to go through the news. And if you're a subscriber to this week in FinTech newsletter, you're in luck because this is the audio version.
- Then we're going to have a chat with this week's friend Giorgio Giuliani.
- And lastly, I'll tell you a little bit about the latest Signals article Rent is Rising – The Rent-A-Charter Model Just Got More Expensive by Trevor Tanifum
This weeks, ‘fintechtionary’, which is our dictionary definition of a fintechy word is:
Point of Sale
According to Investopedia, Point of sale (POS), refers to the place where a customer executes the payment for goods or services and where sales taxes may become payable. It can be in a physical store, where POS terminals and systems are used to process card payments, or a virtual sales point such as a computer or mobile electronic device.
Depending on the software features, retailers can track pricing accuracy, inventory changes, gross revenue, and sales patterns. Using integrated technology to track data helps retailers catch discrepancies in pricing or cash flow that could lead to profit loss or interrupt sales. POS systems that monitor inventory and buying trends can help retailers avoid customer service issues, such as out-of-stock sales, and tailor purchasing and marketing to consumer behavior.
But first this week in Fintech
🚀 Product Launches
Binance and Mastercard are partnering to launch a crypto-to-fiat payment card.
HSBC launched variable recurring payments for personal and business customers who use open banking services.
Nationwide Building Society in the UK partnered with Moneyhub to launch an open banking savings account funding tool.
📰 Other News
Huntingdon Valley Bank became the first bank collateral integration partner of MakerDAO’s DAI, meaning that it will have access to 100 million DAI to support its lending and client services. This marks a significant step forward for the integration of the traditional and decentralized finance ecosystems.
Relatedly, Brazil’s central bank chose Itaú Unibanco, the country’s largest bank, to work on a decentralized liquidity protocol. (As the Monetary Authority of Singapore clamps down on retail crypto trading and Asian central banks issue digital banking licenses to traditional banks to help them counter fintechs.)
Sumitomo Mitsui Financial Group is preparing to launch Jenius, a fully-digital neobank in the US.
FedNow may finally launch next summer.
Bigger US mortgage lenders are turning up the intensity of their offers and marketing as smaller lenders withdraw from the market or go out of business.
Indonesia and Singapore will connect their national QR standards.
Lloyds Bank, Halifax, and Bank of Scotland were locked out of online banking and their banks’ apps due to glitches. NatWest must refund business customers £600,000 after forcing them to open checking accounts to secure a loan.
🚀 Product Launches
Global payroll and compliance provider Deel launched an instant card transfer payment option for contractors, in partnership with the UK’s Paysend.
Fintech firm Deraya launched Saudi Arabia’s first roboadvisory investment service.
Crypto protocol NearPay launched virtual crypto cards and a wallet for iOS and Android.
Compound launched the third version of its defi protocol, in which collateral will remain the property of the supplier.
📰 Other News
Block is building an open-loop(ish) CashApp payment network with partner merchants, in a bid to compete directly with card networks. Users can now pay with Cash App outside the Square ecosystem. It will be interesting to see where this goes.
There’s now a women in fintech speaker index.
Stablecoin issuer Tether has come out and said it won’t freeze sanctioned addresses unless specifically requested.
UK supermarket chain Iceland is rolling out buy-now-pay-later to help customers deal with rising food costs.
Australian fintech Afterpay is closing down its Money app and ending its partnership with bank Westpac as it prepares to roll out Block’s Cash App in the country.
Google Wallet rolled out its payment method wallet and tap-to-pay functionality in South Africa.
Flutterwave received a Switching and Processing License from Nigeria’s central bank
to offer transaction switching and card processing services, plus non-bank acquiring, agency banking and payment gateway services.
Block is facing a lawsuit for a December 2021 Cash App breach that affected over 8 million users. Robinhood received preliminary approval to settle a class-action lawsuit for $20 million. Wise was fined $360,000 by Abu Dhabi for AML failings.
Klarna’s losses quadrupled in the first half of this year to $581 million.
Around 60% of fintechs surveyed labeled Hong Kong as too uncompetitive to do business in.
And now for our friendly chat with this week’s friend Giorgio Giuliani
Giorgio Giuliani: Product Lead at SumUp, author of the blog Fintech Ruminations, and founder of a community of fintech professionals, founders, and investors called Fintech Product Guild. Hope you enjoy our friendly chat!
Thank you so much for coming on the podcast, we're excited to have you.
It's my pleasure to be here.
So maybe we'll just start with just I'll be great to know a bit about you like, where you based?
So I'm Italian, I'm from Rome. But I'm based in Berlin, and I am one of the product lead at SumUp, which is FinTech super app. I'm building the summit Bank, which is a bank for SMEs.
Nice. And so if we talk about SumUp to your non FinTech friends, how do you describe what you do?
I think in the same way, you have an operative system for your smartphone, I think you can consider SumUp an operative system for your small company. Essentially, that's, that's the goal. It's, it's software or it's a product that you start using and can solve many different problems for your day-by-day activities. As an entrepreneur, as an SME, that's what we do. It goes from payments to banking to accounting, invoicing, online presence, so you can build an online presence. So the different aspects, and we will hope, and we want to cover all of them. Let's say that the part that I'm building, the bank account is kind of a glue that connects the different experiences.
If you were to say what the SumUp user looks like, your ideal client or your ideal user, like what kind of person?
What the user we build for. And the user we usually have in mind is a coffee shop owner in Prenzlauer Park, which is an area in Berlin. And that's our like archetype of the persona. In general, they can be also taxi drivers, hairdressers, or mom and pop shops, any small and medium enterprise in general. But these are the people that we have in mind when we want to build products for right and
you focus a lot on freelancers as well, yes, we also do freelance says is that like secondary? Or?
I wouldn't say it's the main target, but we have 1.5 million customers. So definitely, we have freelancers.
Yeah. And I guess we have now more and more because of the way the economy is like everyone, not everyone, but a lot of people kind of have like a freelance elements. So even if you're, for instance, like working in one place, because of the way the economy is going, it's like, you can also, in theory, also be a freelancer totally.
No, no, no, absolutely. I mean, I think you're saying that the traditional career doesn't exist anymore. And it's, I mean, the professional path of essentially everyone; now it's much more fragmented. And in your professional life, you might have, or you will probably have either side gigs or started to work as a freelance or start a small shop. And this is much more frequent compared to the past. And yes, we're trying to help these people essentially.
Yeah, that's me. I have those people. Okay. Yeah, well, in the sense of like, I had a sort of traditional, you know, when I finished university, I graduated, I was on a graduate scheme, I did that I went, I had another job, I switch. And then, you know, suddenly, I think there is a pivot. And I don't think like, my story's very unique. I think there are a lot of people who are currently, or maybe it's the pandemic, I think the pandemic just exacerbated what was already going to happen. But there is this kind of, yeah, just this people moving towards, like the Yeah, like less traditional ways of working and living.
The reason here and component of freedom to this, like, I think we as a generation want to have more freedom or less. I don't know if it's less of anything, but I think one characteristic of our generation is to try and pursue what we want, rather than having a clear career path to the corporate ladder where you start, and then you move to the next step. And then the next step doesn't make people very happy. Or not as many people as it used to. And so products like the one we're trying to build are used more for this purpose.
Yeah, I have a different theory on that. What's your theory? My theory's not even my it's not like okay. I wish I came up with it. . But there's a book I read once, which was all about the 100-year life because people are living longer. And if you've read it, she's amazing. But yeah, like, because people are living longer, like the economy and the way a lot of Western societies are built doesn't really make sense. So she talks about that kind of shift of like, how people live and how people are. And she, she wrote that pre-pandemic, you know what I mean? But yeah, because we're living longer, we have to kind of like, we don't, you know, it's not like born education, get married, have kids die, like you have to, like, reinvent an economy that makes sense for the fact that people live longer. And the fact that like, 60 or 70 doesn't necessarily make sense for retirement. But also, you need the sabbaticals and these breaks and the ability for people to pivot. So I always, like, Have that in mind when I'm having these conversations about a
true No, that's very, I mean, I never considered to be honest, based on my experience, seeing the people around me, the ones that started either their own thing or sidelined, they didn't do it, because they think they're gonna leave 100 years.
Yeah, I think I don't think it's like a conscious thing. I don't think we're all like, Oh, right. Like, I've got, I've got a few more years on this planet, and what am I going to do with it? I don't think it's like a conscious thing. I think that's what she says. It's just more, she talks about loads of the shifts in society that are creating that, but it's not as it's not conscious for the individual. It's not conscious. But I guess her point is that governments need to be conscious of it, not necessarily like me, and you living our everyday lives to like, help people transition. Because you know, people are having less kids, but then you have a growing aging population. So like, it doesn't, you know, that generation being born, as you know, I feel I could go on about this stuff for ages like, but I guess, yeah, I don't think it's a conscious idea that we're all being like, we say, you know, we're going to live to 100. And this is how we should then live our lives. But I think it's just these generational shifts that are happening, regardless of, of whether we're like, consciously doing it.
Yeah, probably. I think there is. There is a fundamental shift in the way we live our own life. There are no rules anymore. I really believe in this really, I think, yeah, I think in the past I've been. So I'm 35. So I think you're younger than me, but people of my age, and I don't come from London or New York. So I'm from Rome, which is, yeah, a nice city in the Western world. But it's definitely not the most events city in the world. And we're very proud of our history, but not our current situation. So I've been, I grew up with the kind of very regular life objectives, what you should suppose to do a certain age, and the moral and then when I started when I went to university, and then I was looking at the really successful people around me, but the ones that are really successful in their life, not only professionally, and I realised that they actually have no rules, like they, they, they understood immediately that there is no the rules, the playbook that we used to have. It doesn't exist anymore. I really believe in that. So I think the most important thing you should do is just understand what you want to do, understand what you're good at, and then try mixing these two things. Nothing else, I think, blindly following your career because it used to work. I don't I really don't believe in it.
No, I don't believe in it either. And like when I started to kind of like freelance, I feel like a lot of my friends were in that we're still in like traditional. But then even if I look at the light past year, there's so many people I know who like, have started to think about that, in the same way where it's like, what am I good at? How do I transition? And actually, I think you're right there is that real sense of like, it's not enough just to work and make money like it's just but yeah, that's interesting how, like, as a generation, then that we feel like fulfilment is an important, like element of how we need to live. Because I don't know, I actually don't know if that was the same way. Like if I think,
like, based on my experience, I think it was nice to have your way. But the priorities were different. And you are to feel the priorities. And then eventually, as a byproduct of that, you would eventually be fulfilled personally.
yeah, once you Yeah, once you reach 60 And you retire now you can do whatever you want. Whereas now people are like, I'm not going to do this for the next like 50 years, and then all of a sudden,
think it's like you mature, as an approach because you understand what, what really matters? Obviously, we don't have a society that is structured to do it.
Yeah, it's funny because I was with my friend and her boss, and they were having a conversation. And her boss was saying to her, like, she shouldn't do things that you're passionate about, you should do things that like, that have a function. And I just thought I didn't say anything, because it wasn't my manager. But I was just thinking, that's terrible. Like, I was, I didn't want to say anything, but I was like, Is this person serious? Like who's thinks like that, but then I thought to myself, I'm in this bubble of people who think the way I think, and maybe have more, less traditional careers and stuff like that. So that was like, Maybe I'm just in this bubble. And actually, this is the majority viewpoint
there's still the majority viewpoint, but I believe that it will become mainstream, or it's becoming mainstream. That's how cultural revolution happens. It's not that everyone starts thinking at the same time that something new is better is you have a handful of pioneers that behave in a completely different way. And then that becomes the rule. And I think, I think this is what is going to happen. And obviously, you still need to do stuff that people want to pay you for. Because in the end, you need a way to support yourself, but starting from what you like, and then understanding what is needed. It's it's easier, I would say
no, it's true. But as a kid, like no one tells you that well, no one told me now
it's obviously not I think no parents would ever say something like that. Yeah, yes, it's a hippie. Very unusual, but it's a tiny minority. Yeah. Cool.
Interesting tangent. But yeah, I was gonna ask, Is that like any interesting FinTech fact, or stat that you learned recently that you think would be interesting?
I was reading a post by my friend Akash is a VC working for Earlybird. And he posted in a new post today and essentially was referring to these a total addressable market for different verticals in FinTech and how much of the revenues for each vertical. So the verticals are payments, lending banking insurance, what is the percentage that is going to disruptors? So two FinTech companies? And what is the percentage going to incumbents, in the majority of them are in all of them, actually, because I have it in front of me. incumbents are still making more than 93% of the revenues in each segment. Yeah. So this means that like in the FinTech niche, we think that we are very big company, super successful company. But the real meat is still not there. I mean, there are avenues for growth. And yeah, I think we're now like, we went from zero to 10. Now we have to go from 10 to 100. It's completely different, completely different responsibility also, but completely different market dynamics. And I think it shows where, where we are in this evolution.
Yeah. Well, I think it's like if, you know, for the average person, what, let me not say the average, I think, I think one is an age thing in the sense of like, a lot of people under I don't know, 35 like really understand, or they don't actually need to understand, but I think like the average person will be like, Okay, I have a Monzo card, and I still have like an HSBC card as an example. But then I think there is still that like, element of for people who are a little bit older, you don't I think FinTech still doesn't necessarily have their trust. for instance, I would say, even in my household, me, my sister and my brother have some sort of like FinTech something. Whereas like my mom wouldn't and doesn't. So I think there is that element where it's like, you might feel like you're doing so much, but you're doing so much within a specific element of society
yes, I agree. But I think it's important that the industry and its protector practitioners keep this in mind. Yeah, because you constantly need this fire because building stuff, especially in a regulated environment, it's it's challenging, yeah, tiring. And you need this constant fire of willingness to go the extra mile and doing more for more and more people. And when you're already successful or successful enough, it's it's hard. I mean, it's, it's not that trivial to to get a company that is successful and to bring it to become enormously successful. culturally speaking, it's very complicated. I think this metrics and these thoughts are useful to remind. Yeah.
And there is that shift, right? Because, like, to your point, I think like fintechs are continuing to, to grow. And even you've got so many popping up, which are so niche and specific. Like, for instance, the other day, I wrote an article on Sibstar, which is specifically doing FinTech for people with dementia. So it's so specific to people's needs. And like, yeah, and it was I interviewed the lady, and she was incredible. And then, for instance, my niece, she's got GoHenry card, which is like, a payment card for kids. So all these little things mean that you are creating, like, you're, helping the needs of very specific members of society. And I think that's the whole point of fintech. But then to your same point, if everyone has like, very specific cards and very specific needs, then you don't have that like massive growth, because to the point of traditional banks, they kind of serve everybody's needs. And that's the whole point.
Yeah, I think we're gonna see over the next decade, probably an evolution in two directions. One, you will have these generic or multipurpose companies like Monzo Revolut, that will become super big financial providers that will eventually compete with Santander, Barclays players like this. And in parallel, you will develop super niche FinTech proposals or financial propositions because in the end, FinTech it's, it's nothing. I mean, you're developing a financial product for a specific user. Now, it's called FinTech, because we live in the age of, the internet, and of raising money as a tech company is much easier. That's why you call it fintech. But ultimately, you're building a financial company. And there will be a myriad or so 1000s, I believe of financial companies that will solve micro problems.
Yeah, and there's nothing wrong with that. Right. It's all about diversifying. So. Yeah, it makes sense. Exactly. It's like there's if you need to put money into different places, there's no reason why you can't do that. It gives people flexibility.
Like for me investing, it's a very like a treat time, like more. I consider time more precious than money. First of all, the way I invest time for me, it's very important. And I invest time, I don't spend time, because I can't, I can't buy time, it's the only thing I can buy. I mean, there are also many other things, but definitely, I can't buy time. So in terms of time, I'm very interested in decentralised finance, I firmly believe it's the natural evolution of financial services. I think FinTech has built a very good customer-facing interface. .
So that's where I will spend a lot of time, from a money point of view. I do believe that crypto as a future, I've been involved in the crypto space since 2015.
And I think it's a good time to look at key assets that will eventually become the future platform. So yes, that's what I expect. I hope that and also like an interesting thing is tech companies that can be the Amazon of the future. Because if you were buying Amazon in 2000, you would have paid it probably $5 per share. And you will have made under IDEX even more. I do believe that there are companies around at the moment that can be the next Amazon in the sense of becoming mainstream and used by everyone in every corner of this globe. So I would look at two options: crypto and shares.
Nice. Yeah, there, they seem like very sensible options. Maybe Yeah, with crypto, the crypto is so interesting with like the merge and ETH and then also but then also equally you've got Like all the crypto winter
The crypto winter is very good for me because, honestly, I've been active in the space since 2018 defy specifically, I tend to do only very focused stuff like I don't do crypto in general differ. And now, I'm focusing specifically on real-world assets, because that's what interests me. So bringing real-world assets on chain, I think that crypto winter is bringing a lot of focus is filtering out a lot of useless ideas and people that were there just to enjoy the momentum of, of the bull market. And there were a lot of charlatans to like people that didn't really understand the technology's future potential, or they weren't even very interested in it. I think these people will eventually go away. Or some of them are already left, but I'm afraid that many more will leave again. And only people that are really interested in building will say, I hope
Yeah, that's it isn't really interesting. Like I wrote an article a couple of weeks ago on the crypto winter in Europe, and I'm just finishing one on people's views on the crypto winter in Africa, as I'm like getting lots of different perspectives. And actually, most people are like, kind of have your viewpoint where it's like this, this is good. But then equally, like, you know, how you're saying, like a lot of people are will leave investing and stuff that's positive and negative, because I think then you do have like a, a section of society that could potentially could be brought back brought into this. And this was a view from like the Africa side where it was like, you have sections of society that could and will be brought in to crypto and this kind of like scares people, and then they kind of like, you know, it's like one step forward, two steps back. I
partially disagree. I don't think that onboarding people in crypto through buying altcoins. Yeah, a good way. I think that is the most wrong way to do it, or wrongest. I don't know which one is correct. So I believe that people will use blockchain-based solutions through experiences that will be better than what they are currently using. And they will not even know it's a crypto solution. Right? They will ignore the fact that it's crypto-based, they would just have a better solution to an existing problem or to a new problem. But they will just have solutions. And I don't think they will be aware of this. And for me having people that are just chasing the next altcoin or the next NFT drop. I think it's it's wrong. It's wrong attitude to words, a serious thing because money and investing it's it's a serious thing. And I think it's for the wider ecosystem. It's healthier to have fewer people, but that are actually solving real-world problems. Rather than having many, many people that are just speculating, and when the game is over, they just leave and lose money. When I was
speaking to loads of different people about their thoughts and their fears on the crypto winter and stuff. Many people were saying more than, you know, the crypto winter their concerns was like scams and fraud. And to your point, getting people out at this stage may eliminate those. That concern because that seemed to be something like people kept saying it was like the Ponzi schemes and the scams and the frauds. And that's a major concern more than the, you know, inflation, the crypto winter, or anything like that.
Yeah, I think it's exactly as you said, like, I think it will happen. Yeah.
So one last question on this sort of topic. What and this was a question that was written by like our first guest Rohit. But I think I'm just asking you every single time because I think it's good to question.
We used to work together.
What was your ‘Oh shit’ moment in your career?
In startups, you tend to have these kind of problems, but I was lucky enough to be in situations where we were actually considering one It could have been the impact of having issues, and we had rollback plans, but no shit moment. When I was at funding circle working for Rohit. So we were doing a massive migration essentially. Okay. So I mean, I don't know if you know what a funding circle is. But the funding circle is a lending, p2p lending platform, you have borrowers on one side, SMEs, and investors on the other side, so investors were lending money to borrowers. Now, the model, it's different because the b2b model doesn't exist anymore. You only have institutional investors. But at that time, we had also retail investors. So we were doing this massive migration, migrating all the users and investors, from an old platform to a new one, much more scalable, pre IPO. Super cool project. We usually add a go-live meeting before turning on the new platform and starting the migration. So we had the goal of meeting 15 people, 15 stakeholders, everyone has to say, Yes, I'm okay with that. So we started saying everyone said yes, also the engineering manager responsible for the regulation that at some point, it was the call was essentially over some point, one of the most senior engineers that we had, well said, Yeah, but I actually don't think we should, we should go live. I mean, we were we had a lot of preparation, I flew from London to San Francisco to make this transition happen with this engineer. And then the day before, during the last minute of the call, we're not ready. So we had to postpone everything we had started. We had already started the migration in some parts of the migration, we had to rearrange everything. And I mean, it wasn't we didn't break the system. But it was a very funny moment. Because yeah, you should have seen the face of the manager of will because she said, Yes, we're ready to go. And then he said, No, we're not. So it was a funny moment. Right? It was part of that call? I'm sure he will. If you mentioned it is definitely remember,
did you eventually do it? Or like what? What happened? Yeah,
then we waited to one or two weeks. We fixed potential criticalities that we'll envision and then we decided to go live.
Okay, cool. That's not too bad.
No, I told you I didn't have any major fuckup
well, not even when he was younger, when I was younger,
but I started doing startups. Seven, eight years ago, and, yeah, lots of bugs. But this for me, it's normal. Like it was. Things break every time, so you constantly have busy or things that don't work. You have to jump in. So I think it's,
yeah, it's normal. Yeah, we're just talking about it, but cool. Okay. I'm gonna move on to our like, quick-fire round. Ready?
Quick Fire 🔥
- What's the last thing that made you smile?
I mean, this morning, my wife said a very funny thing. And yeah, I laugh a lot with my wife. So it was my wife. Ah,
- Would you rather lose the ability to read or lose the ability to speak?
To speak? Of course. Yeah. No, I have no doubt about that. Yes.
- If you could talk to anyone from history, who would it be?
I'm really passionate about history. Okay, even founded on historical society in Rome. And we're going to have an event next week. Actually. I do really appreciate the French Revolution. That for me is the most interesting event in history. So I will talk to Maximilien Robespierre.
- Okay. Would you ever be locked for a week in a room that's overly bright or overly dark?
Dark, I am photosensitive so I don't like I mean, there's too much light I suffered.
- What show are you currently watching on Netflix? So yesterday,
we started the show with the Japanese babies that you see, the name is
the one that they go like working or something? Yeah, they
have like a task. And they have they tell them like therefore, for four years old kids, the four years old and they tell them, Okay, go to the grocery shop and buy bananas, and they, they have to go and they start and they get distracted, and then forget about what they were doing. It's very funny.
- Would you rather never be able to keep anyone's secrets or have someone tell all your secrets?
won't tell all my secrets. I cannot lie.
- And what was your first job?
as a kid so I helped my father as a small company, a logistic company. And when I was probably 11. We weren't me and my brother we want to help him on in summer and in exchange didn't even pay me he just bought me rackets because I used to play tennis. And so every time I get a new tennis racket, but I should have been paid more to be honest now reflecting.
There's no law. Yeah, I got a good deal.
- If you could only send one emoji ever again. Or like that was the only one you could ever send?
the joy the love for with? With the little crying? 😂 I always think there should be a plugin on WhatsApp or messenger or this thing to analyze all the emotions that you send, and gives you a report at the end of the week or the day on, what are the emotions that you're sending? Which people is using which emoji? I would find it super interesting.
Would you rather be staying stranded in the jungle or stranded in the desert?
- And what are you having for dinner this evening?
I think pizza. I mean, it's very stereotypical to be honest. I mean, a lot of pizza and pass a pass every day and pizza once or twice a week. So I like it and
you're allowed. Awesome, that's cool. Um, but yeah, that's the end of the quickfire round. Thank you so much for answering my question to just like one last thing, as this is the FinTech friend podcast, who's a friend of yours that you think we should sort of highlight or stay on the lookout for?
So I would say, definitely Rohit. Because I mean, you already interviewed him, and it's another mentor for me, I really learned a lot from him, then a very good friend of mine, that is a brilliant defi writer is Luca Prosperi, is another Italian that he used to be in investment banking. But now, he has an incredible life story. I wouldn't want to tell you more people can look for his profile and pay he has a very incredible life story. And is now I think, one of the best minds in decentralised finance because he writes about stablecoins and monetary policy. Super, super smart. It's definitely one of the smartest people in the space. Like how he's very young and his perspective, I think it's gonna bring him very far.
And last question, what is a question you think we should ask the next friend?
When are you going to stop working on fintech? What is the event that will make you stop working on FinTech and move to something else, if you will ever do it?
Thank you so much Giorgio!
Signals the This Week In Fintech paid subscriber read, and I'm going to read you a snippet from our latest article:
Signals: Rent is Rising – The Rent-A-Charter Model Just Got More Expensive
Where there is smoke, there is fire.
By Trevor Tanifum
The smoke: A recent flurry of regulatory activity in response to poor application of risk and compliance requirements in the bank-fintech partnership model.
The fire: Existential risks to the bank-fintech partnership model and, by extension, the provision of financial services products.
The extinguisher: Clear-eyed assessment of the current state, commitment to principles of safety and soundness, and considered strategy to manage risk and compliance.
Let’s take a step back.
The last few years have seen an evolution in the nature of the relationship between fintechs and banks. Early theories that fintechs would pose serious threats to community banks haven’t quite proven to be true. Fintechs’ ability to fully execute on their value proposition – that, by using technology, they can service more people, more quickly, and at lower cost – has been hindered by regulatory complexities. Due to the financial, logistical, and political challenges associated with obtaining their own bank charters, fintechs have struggled to compete directly with banks. Although the number of community banks has steadily declined the last few years, this decline is not at the hands of fintechs. Other things, yes, but not fintechs.
Instead of direct competition, fintechs and banks have orchestrated mutually-beneficial relationships where fintechs create products and define the customer experience, while banks – the regulated entities – provide the infrastructure and regulatory authority to offer the underlying services and products. This is known as ‘banking-as-a-service’ (“BaaS”). In a traditional program manager relationship, the fintech is contractually required to maintain a subset of the regulatory compliance and risk management functions applicable to the products it offers.
This fintech and bank relationship also created a new layer of market participants, known as ‘BaaS platforms’ or ‘middlewares,’ whose principal value proposition is to negate the costly and time consuming interactions between banks and fintechs2. The BaaS platform pitch is straightforward; if you are a bank, enter into one commercial arrangement and submit to one technological integration, but get the financial benefit of many. If you are a fintech, integrate with sophisticated APIs (as opposed to an outdated bank core) while also handing off some (or in some cases, most) aspects of your risk and compliance program and focus on what is most important to you – customer acquisition.
Commercially, this model has flourished. To provide just a couple of statistics, customer acquisition costs for financial institutions that partner with BaaS platforms are 82.5% to 95% lower than without3, and projections of global revenues for the BaaS platform industry are as high as $12.2 billion by 2031, up from $2.5 billion in 20204. Qualitatively, the model has catalyzed explosive growth in the volume and variety of fintechs in existence, giving consumers more options than ever before to spend, save, invest, borrow, lend, or earn.
Unfortunately, a great deal of that commercial growth may have outpaced the maturity of the risk and compliance programs designed to support it, much to the discomfort of one group of stakeholders – regulators.
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